Page 1 CONFORMED COPY GRANT NUMBER H451 TJ Financing Agreement (Third Programmatic Development Policy Financing) between REPUBLIC OF TAJIKISTAN and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated April 21, 2009 Page 2 GRANT NUMBER H451 TJ FINANCING AGREEMENT Agreement dated April 21, 2009, entered into between REPUBLIC OF TAJIKISTAN ( “Recipient”) and INTERNATIONAL DEVELOPMENT ASSOCIATION (“Association”) for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). The Association has decided to provide this financing on the basis, inter alia , of: (a) the actions which the Recipient has already taken under the Program and which are described in Section I of Schedule 1 to this Agreement; and (b) the Recipient’s maintenance of an appropriate macro-economic policy framework. The Recipient and the Association therefore hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) constitute an integral part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II - FINANCING 2.01. The Association agrees to extend to the Recipient, on the terms and conditions set forth or referred to in this Agreement, a grant in an amount equivalent to thirteen million three hundred thousand Special Drawing Rights (SDR 13,300,000)(“Financing”). 2.02. The Recipient may withdraw the proceeds of the Financing in support of the Program in accordance with Section II of Schedule 1 to this Agreement. 2.03. The Maximum Commitment Charge Rate payable by the Recipient on the Unwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per annum. 2.04. The Payment Dates are March 1 and September 1 in each year. 2.05. The Payment Currency is Dollars. ARTICLE III - PROGRAM 3.01 The Recipient declares its commitment to the Program and its implementation. To this end: Page 3 2 (a) the Recipient and the Association shall from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Program; (b) prior to each such exchange of views, the Recipient shall furnish to the Association for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request; and (c) without limitation upon the provisions of paragraphs (a) and (b) of this Section, the Recipient shall promptly inform the Association of any situation that would have the effect of materially reversing the objectives of the Program or any action taken under the Program including any action specified in Section I of Schedule 1 to this Agreement. ARTICLE IV - REMEDIES OF THE ASSOCIATION 4.01 The Additional Event of Suspension consists of the following: a situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. ARTICLE V - TERMINATION 5.01. The Effectiveness Deadline is the date ninety (90) days after the date of this Agreement. ARTICLE VI - REPRESENTATIVE; ADDRESSES 6.01. The Recipient ’s Representative is the Minister of Finance of the Recipient. 6.02. The Recipient’s Address is: Ministry of Finance 3 Akademikov Rajabovikh Ave. Dushanbe, 734025 Republic of Tajikistan Facsimile: (992-372) 213329 or (992-372) 221-6796 Page 4 3 6.03. The Association ’s Address is: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INDEVAS 248423(MCI) 1-202-477-6391 Washington, D.C. AGREED at Dushanbe, Republic of Tajikistan, as of the day and year first above written. REPUBLIC OF TAJIKISTAN By: /s/ Safarali Najmuddinov Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By: /s/ Saodat Bazarova Authorized Representative Page 5 4 SCHEDULE 1 Program Actions; Availability of Financing Proceeds Section I . Actions under the Program The actions taken by the Recipient under the Program include the following: 1. The ministries and agencies of the Recipient responsible for the granting of business licenses have: (a) adopted the necessary internal documents to implement the Law on Licensing (Decree 37, dated May 17, 2004, as amended) and its associated regulations; and (b) taken all steps to bring all other internal documents into accordance with the Law on Licensing (Decree 37, dated May 17, 2004) and its associated regulations, including registration with the Ministry of Justice. 2. The ministries and agencies of the Recipient responsible for inspections of businesses have registered new or amended inspection manuals and checklists with the Ministry of Justice. 3. The Recipient has satisfactorily implemented restructuring of the aviation industry for the separation of airport, airline and air traffic control functions in accordance with the plan set forth in Resolution No. 175 of the Recipient’s Government, dated April 3, 2007, as agreed with the Association. 4. Presidential Decree 541, dated September 16, 2008, approving the concept and an action plan for improving the structure of the Recipient’s public administration has been adopted. 5. Presidential Decree 480, dated June 20, 2008, implementing the third phase of wage decompression has been adopted. 6. Presidential Decree 557, dated October 29, 2008, approving the strategy and action plan for the establishment of an independent external audit entity has been adopted. 7. Presidential Decree 480, dated June 20, 2008, allocating a greater share of wage increases in the health sector to primary health care workers has been adopted. Section II . Availability of Financing Proceeds A. General The Recipient may withdraw the proceeds of the Financing in accordance with the provisions of this Section and such additional instructions as the Association may specify by notice to the Recipient. Page 6 5 B. Allocation of Financing Amounts The Financing shall be withdrawn in a single tranche. The allocation of the amounts of the Financing to this end is set out in the table below: Allocations Amount of the Financing Allocated (expressed in SDR) Single Tranche 13,300,000 TOTAL AMOUNT 13,300,000 C. Deposit of Financing Amounts 1. The Recipient shall open, prior to furnishing to the Association the first request for withdrawal from the Financing Account, and thereafter maintain a deposit account in Dollars (“Deposit Account”). 2. All withdrawals from the Financing Account shall be deposited by the Association into the Deposit Account. D. Audit The Recipient shall: 1. prepare and furnish to the Association not later than one (1) month after the end of each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association; 2. have the Deposit Account audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association; 3. furnish to the Association as soon as available, but in any case not later than four (4) months after the end of the Recipient’s fiscal year, a certified copy of the report of such audit, of such scope and in such detail as the Association shall reasonably request; and 4. furnish to the Association such other information concerning the Deposit Account and its audit as the Association shall reasonably request. Page 7 6 E. Excluded Expenditures The Recipient undertakes that the proceeds of the Financing shall not be used to finance Excluded Expenditures. If the Association determines at any time that an amount of the Financing was used to make a payment for an Excluded Expenditure, the Recipient shall, promptly upon notice from the Association, refund an amount equal to the amount of such payment to the Association. Amounts refunded to the Association upon such request shall be cancelled. F. Closing Date The Closing Date is September 30, 2009. Page 8 7 APPENDIX Section I . Definitions 1. “Deposit Account” means the dedicated foreign currency deposit account referred to in Part C. 1 of Section II of Schedule 1 to this Agreement. 2. “Excluded Expenditure” means any expenditure: (a) for goods or services supplied under a contract which any national or international financing institution or agency other than the Association or the Bank has financed or agreed to finance, or which the Association or the Bank has financed or agreed to finance under another credit, grant or loan; (b) for goods included in the following groups or sub-groups of the Standard International Trade Classification, Revision 3 (SITC, Rev.3), published by the United Nations in Statistical Papers, Series M, No. 34/Rev.3 (1986) (the SITC), or any successor groups or subgroups under future revisions to the SITC, as designated by the Association by notice to the Recipient: Group Sub-group Description of Item 112 Alcoholic beverages 121 Tobacco, un- manufactured, tobacco refuse 122 Tobacco, manufactured (whether or not containing tobacco substitutes) 525 Radioactive and associated materials 667 Pearls, precious and semiprecious stones, unworked or worked 718 718.7 Nuclear reactors, and parts thereof; fuel elements (cartridges), non- irradiated, for nuclear reactors 728 728.43 Tobacco processing machinery 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and w atch Page 9 8 Group Sub-group Description of Item cases) and goldsmiths’ or silversmiths’ wares (including set gems) 971 Gold, non-monetary (excluding gold ores and concentrates) (c) for goods intended for a military or paramilitary purpose or for luxury consumption; (d) for environmentally hazardous goods, the manufacture, use or import of which is prohibited under the laws of the Recipient or international agreements to which the Recipient is a party); (e) on account of any payment prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations; (f) with respect to which the Association determines that corrupt, fraudulent, collusive or coercive practices were engaged in by representatives of the Recipient or other recipient of the Financing proceeds, without the Recipient (or other such recipient) having taken timely and appropriate action satisfactory to the Association to address such practices when they occur; and (g) that is a Local Expenditure. 3. “General Conditions” means the “International Development Association General Conditions for Credits and Grants”, dated July 1, 2005 (as amended through October 15, 2006) with the modifications set forth in Section II of this Appendix. 4. “Local Expenditure” means an expenditure: (a) in the Currency of the Recipient; or (b) for goods, works or services supplied from the territory of the Recipient; provided, however, that if the Currency of the Recipient is also that of another country from the territory of which goods, works or services are supplied, an expenditure in such Currency for such goods, works or services shall be deemed to be a Foreign Expenditure. 5. “Program” means the program of actions, objectives and policies designed to improve the environment for private sector development, to improve the overall functioning of the public sector and the delivery of key public services and set forth or referred to in the letter dated December 9, 2008, from the Recipient to the Association declaring the Recipient’s commitment to the execution of the Page 10 9 Program, and requesting assistance from the Association in support of the Program during its execution. 6. “Single Tranche” means the amount of the Financing allocated to the category entitled “Single Tranche” in the table set forth in Part B of Section II of Schedule 1 to this Agreement. Section II . Modifications to the General Conditions The modifications to the “International Development Association General Conditions for Credits and Grants”, dated July 1, 2005 (as amended through October 15, 2006) are as follows: 1. The last sentence of paragraph (a) of Section 2.03 (relating to Applications for Withdrawal) is deleted in its entirety. 2. Sections 2.04 ( Designated Accounts) and 2.05 ( Eligible Expenditures ) are deleted in their entirety, and the remaining Sections in Article II are renumbered accordingly. 3. Section 2.05 (renumbered as such pursuant to paragraph 2 above) is modified to read as follows: “Section 2.05. Refinancing Preparation Advance If the Financing Agreement provides for the repayment out of the proceeds of the Financing of an advance made by the Association or the Bank (“Preparation Advance”), the Association shall, on behalf of the Recipient, withdraw from the Financing Account on or after the Effective Date the amount required to repay the withdrawn and outstanding balance of the advance as at the date of such withdrawal from the Financing Account and to pay all accrued and unpaid charges, if any, on the advance as at such date. The Association shall pay the amount so withdrawn to itself or the Bank, as the case may be, and shall cancel the remaining unwithdrawn amount of the advance.” 4. Sections 4.01 ( Project Execution Generally ), and 4.09 ( Financial Management; Financial Statements; Audits ) are deleted in their entirety, and the remaining Sections in Article IV are renumbered accordingly. 5. Paragraph (a) of Section 4.05 (renumbered as such pursuant to paragraph 3 above and relating to Use of Goods, Works and Services ) is deleted in its entirety. 6. Paragraph (c) of Section 4.06 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: Page 11 10 “Section 4.06. Plans; Documents; Records … (c) The Recipient shall retain all records (contracts, orders, invoices, bills, receipts and other documents) evidencing expenditures under the Financing until two years after the Closing Date. The Recipient shall enable the Association’s representatives to examine such records.” 7. Section 4.07 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: “Section 4.07. Program Monitoring and Evaluation … (c) The Recipient shall prepare, or cause to be prepared, and furnish to the Association not later than six months after the Closing Date, a report of such scope and in such detail as the Association shall reasonably request, on the execution of the Program, the performance by the Recipient and the Association of their respective obligations under the Legal Agreements and the accomplishment of the purposes of the Financing.” 8. The following terms and definitions set forth in the Appendix are modified or deleted as follows, and the following new terms and definitions are added in alphabetical order to the Appendix as follows, with the terms being renumbered accordingly: (a) The definition of the term “Eligible Expenditure” is modified to read as follows: “‘Eligible Expenditure’ means any use to which the Financing is put in support of the Program, other than to finance expenditures excluded pursuant to the Financing Agreement.” (b) The term “Financial Statements” and its definition as set forth in the Appendix are deleted in their entirety. (c) The term “Project” is modified to read “Program” and its definition is modified to read as follows: “‘Program’ means the program referred to in the Financing Agreement in support of which the Financing is made.” All references to “Project” throughout these General Conditions are deemed to be references to “Program”. Page 12 11 (a) The term “Program Preparation Advance” (renamed as such pursuant to subparagraph 8 (c) above) is modified to read “Preparation Advance” and its definition is modified to read as follows: “‘Preparation Advance’ means the advance referred to in the Financing Agreement and repayable in accordance with Section 2.05.”